Episode #388: Scott Lynn & Masha Golovina, Masterworks – The World’s Largest Artwork Purchaser on Inflation, NFT’s & Reaching Unicorn Standing – Meb Faber Analysis

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Episode #388: Scott Lynn & Masha Golovina, Masterworks – The World’s Largest Art Buyer on Inflation, NFT’s & Reaching Unicorn Status

 

Guest: Scott Lynn is the Founder & CEO of Masterworks, the first company to allow investors to buy shares representing ownership of great masterpieces by artists like Warhol, Monet, and more.

Masha Golovina is the Head of Acquisitions for Masterworks.

Date Recorded: 1/19/2022     |     Run-Time: 1:02:03


Summary: In today’s episode, we start with an update since we first talked with Masterworks back in late 2020. We hear how the company has become the largest art buyer in the world, spending about $45 million per month with over 320,000 investors on the platform. We talk about some trends impacting the art market like inflation and NFTs. Then we spend some time on the acquisition process of paintings. We walk through the difference between buying paintings at auction and private markets and which factors have the greatest impact on prices over time.


Comments or suggestions? Email us Feedback@TheMebFaberShow.com or call us to leave a voicemail at 323 834 9159

Interested in sponsoring an episode? Email Justin at jb@cambriainvestments.com

Links from the Episode:

  • 0:40 – Sponsor: The Idea Farm
  • 1:09 – Intro
  • 2:01 – Welcome to our guests, Scott Lynn & Masha Golovina
  • 3:45 – Masterworks becoming the largest buyer in the art market
  • 6:04 – Buying a painting at auction vs. a private sale
  • 9:31 – The impact of COVID & inflation on the art market
  • 18:06 – Thoughts on NFTs
  • 20:10 – What’s involved in buying and selling paintings?
  • 27:51 – Episode #377: Garrott McClintock, AcreTrader; Typical profile of their investors
  • 30:00 – Masterworks’ partnership with AltoIRA [Episode 212: Eric Satz, AltoIRA]
  • 30:40 – Masterworks’ secondary marketplace
  • 33:59 – Feedback and surprises from thousands of conversations with investors
  • 35:48 – Contrast between pre and post war contemporary art returns
  • 42:20 – Generational collectible trends
  • 44:02 – Areas of the art market they are bullish on
  • 45:55 – Scott’s long-term vision for Masterworks
  • 46:42 – Episode #100: Elroy Dimson, London Business School (Triumph of the Optimists)
  • 51:35 – Things they’re worried and excited about
  • 53:34 – Artists they haven’t acquired that’s on their to do list
  • 55:13 – Big art events coming up in the near future, auction stress, and outliers
  • 58:32 – Learn more about Masterworks; masterworks.io/meb

 

Transcript of Episode 388:

Welcome Message: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the cofounder and chief investment officer at Cambria Investment Management. Due to industry regulations he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Sponsor Message: Today’s podcast is sponsored by The Idea Farm. Do you want the same investing edge as the pros? The Idea Farm gives you access to some of the same research usually reserved for only the world’s largest institutions, funds, and money managers. These are reports from some of the most respected research shops in investing. Many of them cost thousands and are only available at institutions or investment pros, but now they can be yours with a subscription to The Idea Farm. Are you ready for an edge? Visit theideafarm.com to learn more.

Meb: Welcome, my friends. We’ve got another fun show today. Our two guests are the CEO and head of acquisitions for Masterworks, the newly minted unicorn that’s providing everyone the ability to invest in top-tier blue-chip art. In today’s show, we start with an update since we first talked with. Masterworks back in late 2020. We hear how the company has become the largest art buyer in the world, spending about 45 million bucks a month across 320,000 investors on the platform.

We talk about some trends impacting the art market, like inflation and NFTs, and we spend some time on the acquisition process of paintings. We walk through the difference between buying paintings in auction and private markets, and what factors have the greatest impact on prices over time. This is unlike any episode Masterworks has done before. Please enjoy this fantastic episode with Masterworks’ Scott Lynn and Masha Golovina.

Meb: Masha, welcome to the show, and Scott, welcome back to the show.

Scott: Thanks for having us back.

Masha: Yeah, thanks. Great to be on.

Meb: Happy 2020, guys. Last time we had you on, I believe, was the end of 20…wait, did I say happy 2022?

Masha: Yeah.

Meb: My God, what year is it? I was going to say, last time I had you on was 2020. Congrats, guys, you guys have been really setting the world on fire, a big, new funding round. Give us the update on Masterworks. What have you guys been up to hard at work the past year?

Scott: Yeah, I mean, the past year feels like ancient history thinking about a year ago, but yeah, the business has changed dramatically. So we’re raising about $45 million a month now. We have 320,000 investors signed up on the platform. Masha and her team have quickly become the largest buyer in the art market. So yeah, a year feels like a decade at this point. The business has changed a lot, as you mentioned. We raised $110 million in a valuation worth of about a billion. The business just continues to grow super rapidly.

Meb: What are you spending all that money on? Is that, like, a war chest to buy art? Is it to hire people, is it to open galleries? What are you guys doing?

Scott: It’s really all of the above. So we’re hiring 20 to 30 people a month now. We’re building out lots of functions that didn’t exist previously, like research, data analytics, sales and marketing teams are growing quickly. We’re using part of our process of taking a painting public is you buy the painting before we file it with the SEC, so there’s a working capital need. It’s really growth across the board.

Meb: And I’m sure you get amused and ignore all of Meb’s crazy brainstorm ideas I send you every, like, three months. And listeners, as you know, I know nothing about art. Every three months, I’ll, like, email Scott some crazy idea and he humors me and at least writes back. So we’ll touch on a few of those today. What does that mean, by the way, to be the largest buyer in the art market? You’re now the whale. You’re now the BSD, as the finance people would call you guys. Does that create some problems for you guys? I know art is a big, stinking asset class probably north of a trill, is that right, maybe a couple trillion?

Scott: Yeah, it’s a $1.5 trillion asset class, roughly $60 billion in art sales every year. This year, we’ll buy upwards of a billion dollars in art, so we’re clearly the largest player at this point.

Meb: Does this create benefits, or like, does it create some real growing pain struggles? Here’s what I’m thinking of. It’s like, I was dying laughing the other day when there was the DAO that was trying to buy the Constitution, and they raised whatever it was, like, $30 million, literally telegraphing to the entire world how much capital they have to spend on it. And then, of course, the Darth Vader of the last few years, Ken Griffin comes in and is like, “You know what? I’ll pay one more dollar than whatever these guys bid.” Does this create some benefits to size, or is it actually a hindrance? Talk to me a little bit about that.

Masha: I think the number one thing that you have to understand about the art market is that, unlike most asset classes that you’re mentioning that would compete in size is that it’s focused largely on personal relationships. So really, for us, being now the number one go-to for a lot of dealers, a lot of private sellers, it’s a huge, huge advantage. And so we actually, probably one of the biggest advantages that we have is an information advantage. And so in terms of, for example, pricing the Constitution, what the DAO didn’t have that we had are a bunch of data points on what potentially other comparable Constitutions have sold for, just to put this in familiar language. And so I think for us, as we scale we really look forward to growing the number of relationships that we have. And so the more name visibility and more introductions that we can get across different types of sellers actually creates a really big benefit to us and the business.

Scott: So today we’re really focused on 55 artist markets. So these are blue-chip name artists, like everyone from Picasso, to Basquiat, down to more important living artists, like Cecily Brown, etc. And out of those 55 artist markets, I think Masha’s team now has seen more than $12 billion or $13 billion in work. So we’re still buying 2% or 3% of what we see, but the information advantage of having all of that private offer data is becoming pretty big.

Meb: Yeah. I’m just trying to think in my head, like, in what scenario…I know a lot of y’all’s transactions go…I don’t know if the right word is secondary, but not necessarily at auction, right, where you reach out to someone. What scenario is that person willing to sell it to you guys as opposed to an auction?

Masha: When we’re talking about buying in the art market, you touched on this a little bit, but there are…well, I would say there are two, broadly speaking, types of transactions, private and auction. And so the private sales, the advantage that you have is that nobody knows the price that you pay, and you are potentially able to make a greater return because nobody is actually using your auction price to benchmark it. The tough thing about private sales is that it can take a much longer time to clear, so people actually usually ask for higher prices private, not that necessarily the works actually sell or clear for that amount. Whereas in auction, you see a lot of works come up at the same time, they’re usually geographically centered around a certain month.

So for example, in New York, November and May you have all the high-value works coming in a certain time, and so you have this one event where you have a bunch of works sell at once. And so what we see a lot of times with auction is that you see sometimes competitive bidding. Sometimes works that we expect to sell for more money we end up buying for less than what we saw it for privately, sometimes by a factor of two. And so auction is just more unpredictable, whereas private, it’s nice to have the private price and the private sales transaction. For somebody selling, I think they factor all of that in. And so if they feel that personally it’s the right time to send a certain artist’s work to auction, they might gamble on the result versus buying something privately, as everybody knows what they’re getting at the end.

Scott: I think at the end of the day, look, I mean, if we pay more for a painting, 99% of collectors will sell it to us and they’re dealing really with the end buyer. Whereas there’s a lot of art world intermediaries that try to take things like consignment, promise to sell things, they oftentimes don’t deliver. So I think just the fact that they know who the buyer is, and as you mentioned, we’re paying a higher price than transaction fees is mostly compelling.

Meb: So there’s a couple of these, not even multi-decade, multi-century old companies and auction houses that go back a really long way. What’s the relationship you guys have with them? On one hand, I would think they love you because you’re increasing hundreds of thousands of new investors interested in the art space, increasing awareness, new dollars in, transactions. On the other hand, you very much have potential to totally disrupt their business model. What’s the story? Do you guys go out for a glass of wine? Are they pretty stoked on you or is it complicated?

Scott: I think at the end of the day, being the biggest buyer, we do a ton of business with the auction houses. The reality is, we’re strategically made a decision not to really build out a retail business dealing with thousands of end collectors to buy paintings. So I think we view that long term we’ll still be working with intermediaries. We never want to be in the business of taking collectors around to art fairs and helping them think about different artists to buy, and eventually buying an individual painting. It’s a lot of work. The auction houses staff thousands of people to do that, so I don’t think that ever really becomes our core competency.

Masha: Yeah. And to add to Scott’s point, I think we touched on how selective we are about what we buy. So whereas the auction houses, if you bring them something that’s not on this list of 55 artists, they have somebody else to sell this to. We just don’t have those outlets and we’re really just focused on a select group of artists.

Meb: There are so many things we’re going to talk about today but one is, we should certainly walk forward from where we last chatted. And we were in the midst of a pandemic, which as we sit here today, literally, I think I have it. My son has it. We’re all fine, but if I sound a little hoarse, listeners know why. But the flavor of what the world looked like now versus a year ago is a little bit different. What’s the last year been like? Obviously things have continued in your world, despite not as much in-person events. What was the significance of November and May? Are those actual, like, gatherings, or do people just happen to transact during those periods? And what’s the last year been like?

Scott: I think from a retail investing perspective we’ve seen tons of tail ends. The whole, kind of, Robinhood investing at home dynamic has been big for us. It’s been big for a lot of other platforms. I think throughout the pandemic we’ve shifted much more towards a private buying strategy with auctions recently opening up towards the end of last year. And from an art market perspective, we always had this, I guess, hypothesis.

We publish a lot of research on how art prices were non-correlated, meaning they don’t move in the same pattern that public equities move in. They’re correlated to growth in the top 1% on a global basis, so the wealthier people get, the more art prices go up. And it’s always fun to publish this data and then you have a real-world event which, kind of, tests it. So that’s what Covid did. We’ve seen our prices continue to grow rapidly at the beginning of the pandemic, all the way through the end of the pandemic. And for better or for worse, I think that’s probably because the top 1% really wasn’t hurt with the pandemic, arguably benefitted. So that really supports a lot of the research that we did historically.

Masha: I mean, to Scott’s point, I think in terms of the art market and where it was a year ago, two years ago versus now is that there’s just a lot more adaptability in terms of how people communicate online and what’s made available by the auction houses for somebody that’s just clicking through their website. But it’s not an astronomical jump. It still involves the auctions that we touched on. They happen in New York in May and November. There’s the spring auctions, and then in London in March, and June, and then October, and then in Hong Kong, also, kind of, in the spring and the fall.

And so with these sales happening, people have the time to go see the works in-person for the auction works in person. But then the auction house has worked around to create a hybrid in-person, online experience. And so now they actually started letting people attend auctions again in-person last season, which previously for the last year and a half they hadn’t, but it’s not a tremendous shift in how people are buying because if you actually go and sit in the auction room you notice that most people are bidding are bidding with an auction specialist on the phone. And the auction specialist who’s raising their hand on behalf of this client who’s on the other line, versus was maybe 10 years ago that people were really actively bidding in the room. The trend of people bidding via phone has actually started long before pandemic, so I don’t think the shift is seismic in that regard, and your actual experience of being in an auction.

Scott: We had this senior executive for one of the auction houses here the other day and he was talking about how their belief is that people are becoming more and more comfortable buying $10 million paintings online without actually seeing them. So I think that’s a new trend that’s interesting, right? Historically, we’ve never really seen multi-million-dollar transactions happening without people standing in front of a painting. So I think that’s an interesting shift in the market.

Masha: Yeah. Or they might send someone to go view it on their behalf or do it all through pictures, video, etc. But exactly, just to Scott’s point, picture doesn’t need to travel to where the client is.

Meb: Yeah, I remember Tweeting at some point in the last year, there was some statistic that was same thing with people buying houses. And I was like, I can’t believe all these people would buy this huge purchase without ever visiting the house. And then my entire replies was people just being like, “I totally did that.” And I was like, “What? That’s crazy.” But the world is different, things are changing. I want to say, one more, kind of, big shift in the past has been and continues to be inflation. This is something that, whether you think it’s short term, or long term, or what, it’s clearly here now. What are the sorts of knock-on effects for you guys? Is it something you see as both a headwind, tailwind? Do you see it increase interest? What’s the general impact this has had or is having on your world?

Scott: Yeah, I mean, look, we hear it every day. We have 1,000 phone calls a day with investors now onboarding them into the platform, and inflation is probably the most common theme from a research perspective. In order to be fair to the topic, we don’t entirely have sufficient data going back in the art market to the ’70s and ’80s, which would be relevant for the inflation analysis. I think we think of art as an inflation-neutral asset at worst, and maybe an inflation hedge at best. Obviously physical objects, tangible objects are, kind of, thought real assets to be inflation hedges generally. At this point we don’t have, I guess, enough data to really conclude that it’s an inflation hedge.

Meb: Yeah, my expectation is that it will be. I kind of put all real assets and collectibles into that category. They obviously go along to their own song based on what’s going on with the dynamics of the asset class, but my expectation is they would be.

Masha: I’d say the one real advantage that art has over a hard asset like real estate is that you have to remember that if we’re looking at an international artist that’s of interest, that artist might be interesting and being acquired to people in Asia, in Europe, and the U.S. So an inflationary dynamic in one country and the U.S. is admittedly dominant in one of the dominant countries in collecting won’t necessarily affect a certain artist’s market.

Scott: One of the things that we always say is, like, remember that you can buy a painting in New York and you can put it on a plane, you can sell it in Hong Kong. So it’s almost this separate currency on its own that, kind of, just operates around the globe. I mean, Masha’s team, you’re doing deals all the time now outside of the U.S. So we really, kind of, view it as this global asset class that’s country independent.

Meb: Do you guys got a Soho showroom yet?

Scott: You know, it’s funny, so we set up this gallery in Soho pre-Covid. Covid happened. We never really got a lot of traction and the business has just grown so much during Covid. As I mentioned, we’re onboarding over 1,000 investors a day now via phone call, so the online presence just now pays for the retail presence.

Masha: When we had it, very few people stopped by, which was a shame. So it’s kind of interesting. I think it just speaks to the nature of investing, especially in something like this.

Meb: Well, here’s what you do. You call it The Masterworks Museum. You’re only allowed in if you own part of a painting, but the upside is you can buy a fraction at the door, so it’s both a client acquisition tool. And say, “Look, you can buy 20 bucks of whatever painting it is.” I’m full of these terrible ideas, Masha.

Masha: With our minimum, that’s going to be the most expensive museum ticket on the planet. We’re going to get roasted.

Meb: That’s fine.

Scott: I think that Meb should direct all of his ideas to you in the future.

Masha: Yeah, we’ll find one that definitely works.

Meb: Well, one of the areas, and this is a topic that I find fascinating, and you guys have talked about NFTs. The concept that I was pestering Scott about, say I own a handful of Masterworks’ paintings and one of the problems that I would like to have solved is I want to hang a version on my wall. I know it’s not the real thing, I don’t care. I was like, “You guys need to have an online store that lets you buy, I mean, posters, but prints or whatever of the paintings that you have an ownership in.” And so one of the big things we’re learning from NFTs is a lot of people are buying them for signaling and status, where if I could have a replica of the Basquiat or whatever in my house and be like, “You know what? I own that painting, a very small pixel-portion of that little red paint stroke in the bottom right corner, that’s how much I own. However, I own it.” I would love to hang that. Are you guys ever going to open an online store where we can get some swag? Or are there complications to that?

Scott: It’s been on our product roadmap. I think I mentioned this to you. We like the idea. It hasn’t hit the priority list yet, but I mean, that’s something that hopefully we can get to later this year. I mean, we get the requests all the time. I think it’s a pretty common request from investors.

Meb: There’s been no mention of NFTs yet in this show other than my brief reference. We talked about it a little bit on the last podcast. What’s your general mind space thinking there? Are you guys spending any time noodling on that topic? I would imagine you get a lot of questions about it. How are you thinking about it?

Scott: When we think about this from a Masterworks perspective, we have thousands of investors who invest from retirement accounts. We have people who are allocating art as a serious part of their portfolio. We don’t view NFTs today as a strategic asset class, and when we think about the definition of a strategic asset class it’s really something that outperforms inflation and is non-correlated. And I think if you go through that analysis and you think of, “Do NFTs today outperform inflation?” There is such a short period of time. We had skyrocketing NFT prices, we had a collapse in prices, we had it skyrocket again. It’s hard to conclude that they’re moving up in a predictable way over time. I think they’re super speculative right now.

And then relative to correlation, I think this is changing a little bit but NFTs were highly correlated to Ethereum, which is highly correlated to Bitcoin, which is highly correlated to public equities. So we struggle with thinking about NFTs as part of an investment portfolio. That doesn’t mean that buying an NFT today couldn’t be a great investment and may be one, but in terms of predictable returns, it certainly isn’t predictable at this point.

Meb: All right, let’s talk about some paintings. How many different offerings have you guys done thus far?

Masha: So we’ve acquired signed paperwork for 100 paintings. We haven’t launched each one of those on the platform. So we’ve launched, what, maybe 70-ish now.

Scott: I think it’s, like, 90, 80, 90 right now.

Masha: I just know how much we buy and then the rest of it I let Scott worry about.

Scott: Yeah.

Meb: What’s the frequency like, one a week, one a month?

Scott: It’s one every five and a half days now. So these are paintings somewhere between $1 million and $20 million each. I think the average price point now is about $5 million to $6 million so we’re launching them pretty frequently. I think by the end of this year we’re projecting that we’ll be launching almost one a day, so it’s certainly the cadence has really picked up.

Meb: So let’s hear about it. Like I said, I have a few. Talk a little bit, and Masha, you can chime in particularly here since you’re the big buyer, the hammer, the axe. That’s the word I was thinking of. I was like, market making, I couldn’t remember the name for a stock, going back to the old days of the market maker, the axe. All right, talk to me about buying and selling these paintings. What’s involved? Do you have to wear disguises?

Masha: I don’t go in, like, a moustache and bowler hat. That’s not my MO. I think there are some people who are collectors who are really well known that people follow around art fairs to try and figure out what they’re buying. The reality is that the way that most of these transactions happen these days is that we are the team as a whole, the acquisitions team as a whole is in market speaking to dealers, auction houses, collectors, really intermediaries every single day. We spend hours on the phone and then they will send us works that they believe fit what we’re looking for.

And so there’s no disguise involved because our first exposure to these works is usually via tax or via PDF. And then if we think that there’s a work that we believe could be interesting to Masterworks, especially if this is an intermediary we’ve worked with frequently, that deal could happen in 24 hours, and if we get there on price and we get there on payment terms. Or we can have a much more prolonged negotiation with a brand new seller to the company. And so once that painting is acquired, once we decide that we like this painting, we go see it, we inspect the physical condition. We’re sure that all the due diligence has been performed adequately, we finish our research, and we sign the paperwork, and then we begin the SEC filing process. And so I made that sound much more simple than it actually is, because the hard part, as we’d said earlier is we acquire about 2% to 3% of what we see. And so the hard part is really finding those 3 out of 100 paintings that we want to own.

Meb: What’s the main disqualifier that kicks the painting out? Is it price? Does it just not fit your general, sort of, wheelhouse? What is it?

Masha: So the number one thing we look for is, is this an artist that we believe in? And so that is something that we work on and get a lot of input in from the research team on on whether or not this is an artist that is right for Masterworks and for investment. And then when we actually go in market to look for works by those artists, we want examples that are super representative by that person. And so what’s an artist, for example, that you’ve invested in with us, or perhaps an artist that you like?

Meb: We’ve got Basquiat, Herring, what else? We could start with those. How about Basquiat?

Masha: I’ll speak a little bit to Basquiat. So his breakout year is seen as ’82. Prior to that he was doing a lot of graffiti in Soho. We actually, from time to time, do see, kind of, graffiti works come up on non-traditional surfaces. So when I’m looking for a Basquiat, I’m looking for something that looks and feels like a 1982 and beyond work, so that when you’re looking at this work you think of it as a successful, commercial example by the artist, something that’s, like, a pithy SAMO quote, which was his graffiti moniker from his early days in Soho. While that could be interesting to a collector who just really loves the idea of Basquiat as a street artist, for Masterworks, we’re focused on works that will continue to have liquidity.

And so part of that is finding the works that are really representative of the best qualities of an artist. So they have potentially the crown that he’s famous for, they have specific types of figures, specific ways that it’s drawn, specific colors. And so that’s what we really look for.

Scott: And the one thing that I would say that’s super hard about Masha’s job but she does very well is dealing with all of these art world intermediaries. I’m trying to think of the right analogy but it’s, like, dealing with…I think we have 1,400 intermediaries who work with them. It’s like dealing with 1,400 very high-end car dealerships.

Masha: There are a lot, and it’s less objective than that in a way because somebody selling a painting might know the artist, or might’ve known the artist when they were alive, or been one of the first people to show the artist. So you’ll often talk to people who have a very personal connection to the work that they’re selling, and so we like to make all our decisions based on our private and public market intelligence, etc. Sometimes people are very emotional about the deal, and so getting those across the line is probably the hardest.

Meb: Well, I mean, if ever there’s an asset class that would elicit emotions it’s art. So much of the tangible value is what people are willing to pay. These things, for the most part, aren’t cash flowing like a traditional business, and so a lot of the value is wrapped up in that. And so maybe expand on that a little bit. One of the biggest selling points for you guys, what attracted me to your process in the early days is, I’m a quant. So the art world, historically a very just scattered insiders network of transparency and prices, and you guys have now built this just monster, in a good way, database and history of transactions. And to me, there’s a very real edge in owning and having that. So how much of it ends up being, sort of, this objective screens and criteria versus some of the subjectivity on how this plays out?

Scott: Yeah, it’s a good question. We actually just released a research piece on data in the art market compared to other asset classes, and I think a lot of people just misunderstand that there’s a huge data set to rely on for understanding returns in the art market because half of the market trades at public auction. So you have public auction data that goes back literally a century. Like, Sotheby’s is 275 years old and Christie’s is 250 years old.

Masha: Two fifty-three now. They celebrated 250 the year I left, which is the only reason I know.

Scott: Yeah, I mean, Sotheby’s was the oldest company in the New York Stock Exchange up until it going private recently. So you have auction data going back decades, theoretically centuries, and that’s a really good data set to understand, how has the art market performed? Our view is that there’s tons of data on the art market to reliably understand appreciation rate by segment, how artist markets are accelerating, how the asset class is correlated to other asset classes. It just really hasn’t been done before, right? We’re really the first firm to take that data, assemble it, and use it in a way that would be similar to traditional asset classes.

Masha: To piggyback off what Scott said, I think part of that is because until maybe, like, 20 years ago the auctions were really only a place dealers went, and then dealers would buy that art. You almost think of it as, like, a wholesale, and then they would sell it on to collectors. I think that’s an over generalization but that’s primarily how it worked. And then you wouldn’t really have people looking at prices, analyzing the data. And then now you have a few businesses that have just been built on, I guess, hoarding the data, so to speak, where you have a couple price databases. But nobody, I mean, it’s a huge lift to build out the kind of research that Masterworks has done to actually analyze the returns. Because the price databases are really just focused on snapshots of, what did this sell for most recently? Or what’s the price history here?

Scott: I’ve been collecting for about 20 years now and one of the things I think is really interesting is to go back and think about the art market in the ’90s versus the 2000s. And the key change in the art market, I think, really happened when a company called Artnet started publishing auction results via a website so that collectors could access the data and understand what prices things were actually selling for in auction. Prior to that, you would really rely on dealers or other people in the art market to say how much things were worth. You would hire appraisers to appraise things. And that data was never that reliable because it was really just based on their experiences. So the Internet really opened up a whole new data set for people to begin analyzing on the market overall.

Meb: I remember talking about we’ve done some other modern fractionalization podcasts. One is on a topic near and dear to our heart, farming, and I remember chatting with the founder CEO and he’s like, “Our typical investor profile is this, but we straight up have a few people that own, like, 50 farms now, where you have this just long tail investors.” So of these 300,000 people, what’s the typical profile? But also, is there anyone who is on there who’s like, “I’m going to buy every painting no matter what? I’m all in on Masterworks.” It’s like a robo-advisor subscription service where they’re just diversifying all the way across. What’s the answer to both? What’s your typical investor, and do you got anybody with 50 plus?

Scott: We definitely don’t. I want to figure out who that farm guy is and go after him.

Meb: Yeah. Well, I mean, this concept of diversification, if you do it for sheer enjoyment, that’s one thing. If you do it where you’re actually trying to build a diversified portfolio, the more the better. You probably need at least 10 of anything to capture, sort of, what’s going on.

Scott: Yeah, it’s interesting, and we’ve done that research and we’ve concluded that eight artist markets is sufficient diversification. Our average investor has grown dramatically. So I think when we spoke last it was probably seeing people invest on the single thousands of dollars on average. Now our average investor is investing somewhere between 30,000 and 40,000 over their lifetime. I would say it’s people that have portfolio sizes above $500,000. So the size of investors has really grown. Now that doesn’t mean that we don’t serve smaller investors. We do and we fundamentally believe in that since these are retail offerings. But yeah, I mean, we don’t have whales. Our biggest investor, I think, is about a million, or just over a million dollars, and that’s incredibly rare for us.

Masha: That’s that long tail where they’re investing, like, 20k per offering and 100k if they really like it, and that’s super rare. I also did see an account the other day, you’re going to love this, every single painting we’ve ever launched, $20.

Meb: See, there you go. That’s what I’m talking about.

Masha: I mean, this is somebody who probably signed up for us when the company was first launched, got grandfathered in, like, a long, long time ago.

Meb: What’s the minimum now?

Scott: We have phone calls with every single investor now that we onboard and we run them through suitability. The minimums are technically $10,000 or $15,000 but we lower them based on suitability. So if that’s too high for someone based on their portfolio the team will drop them.

Meb: You mean 10 per portfolio, or 10 per painting?

Scott: Ten per painting.

Meb: And there was $20 in the beginning? That’s amazing.

Scott: There was no minimum in the beginning, yeah.

Masha: Yeah, if you go find there’s an old CNN-style article.

Meb: Do you guys sync up with any of these IRA accounts? Are you able to put these in tax deferred, or no?

Scott: Yeah, so we support Alto IRA, which has been pretty popular, but they’re really the only ones that we support right now.

Meb: Well, good, that’s a podcast alum. We’ve had them on the show a few times so shootout to those guys. I want to keep talking about the buying and selling but this is a typical Meb conversation. I have all these ideas I want to talk about, one being I’m a cheap bastard and so I love the concept of getting a deal on something. You guys got a secondary marketplace, what’s the story there? I see some Condos, some Monets on here, some Banksys. How does the secondary marketplace work?

Scott: Yeah, the secondary market, just think of it as a traditional secondary market for any asset class. So after an investor invests they put a sell order on the secondary market, and then people can purchase those shares. I think you’re right, though. I do think there are interesting deals in the secondary market. We see that in particular, I think, when artist markets change pretty rapidly, like over the last year, I guess, probably the last year we’ve seen Banky’s market dramatically accelerate, maybe prices go up as much as 100%. Some of the secondary market tends to lag behind that, so I do think there are interesting deals there.

Masha: Yeah, I mean, it’s funny. I think Banks’s just such an idiosyncratic example because people who invest in Masterworks really love him in general, so I would say his prices have sometimes been…before there was that big jump in his market sometimes you saw the opposite. You saw the secondary market be ahead of, kind of, on one of the past offerings you saw the secondary market ahead of where his prices were.

Meb: I’m looking at this; these are like shares of Tesla. This thing trades, like, every day.

Masha: People love Banksy.

Meb: Yeah. I like it.

Scott: We just had our, I guess, most valuable painting sell out in the fastest amount of time. It was the Banksy “Exit Through the Gift Shop.”

Masha: Which is the same title as the painting he won an Academy Award nomination for that was in his “Banksy Versus Bristol” show.

Meb: That’s right, I tried to get into that one and you guys shut it down too quick.

Masha: We didn’t shut it down. It was the demand shut it down.

Meb: Well, that’s what I mean. Was there, like, an auto-subscription at all, like, look, I want to invest in basically every painting? Or is that disallowed?

Scott: Yeah, we don’t today. It’s a really hard regulatory problem because since these are public offerings you have to sign every subscription agreement. So there’s really no way around that confirmation, but yeah, it was cool to see that Banksy painting that was a $7 million offering sold out in a couple hours.

Meb: I don’t think I’ve ever heard of anyone doing straight up phone-based onboarding. What was the decision there? I mean, that’s something that seems thoughtful and I don’t think that’s probably required by the SEC. What was the decision to do that, and how much work is that? And how often do you actually kick people out versus they, kind of, opt out, or self-select out?

Scott: Yeah, it’s a ton of work. We have 40 licensed reps who are licensed by FINRA to talk about how people are investing today, what their risk tolerance is, how they think about diversification, what their horizon is for investing. So we brought in every investor through suitability. We talk about the asset class at length. We talk about individual artist markets. I think for us, we’ve just always found it to be more effective maybe because people don’t know how to think about art as an asset class. There’s really no pre-existing intent to invest in art so we’re educating people for the first time. Our assumption is that’s different from things like real estate where people come to a lot of these platforms already knowing something about real estate and wanting to allocate to it.

Meb: It’s funny because it’s an asset class that certainly has a familiarity from people loving and understanding art, but it’s one of the rare asset classes where people, like, the percentages of familiarity, and then knowing it versus actual tangible ownership, it’s probably the biggest disconnect I can think of. I mean, farmland is one that I’d put in that same category, and two of the biggest opportunities that we talk about, versus a lot of other things are easily transact able. Talk to me some feedback from having these thousands of conversations, and now up to 300,000 investors. What are some of the takeaways? I imagine most everyone comes to this interested in Picasso and some other things, but are there any surprises or things where you’re like, “Whoa, now having done all these conversations, we weren’t really expecting people X?” Or, “This actually confirmed a lot of our beliefs on how people see this opportunity.”

Scott: I think we learn a lot about how people think about investing generally in sentiment around investing. So as you mentioned today, inflation is a big theme. I think people are concerned about potential concerns for public equities over the next decade. Most private banks now, I think, are forecasting returns and public equities to be somewhere around 5% at least domestically. Yeah, people are just struggling generally with where to put money, and I think that maybe combined with pandemic, maybe combined with other things are why a lot of these alternative investment platforms are growing so quickly now. Those are most of the conversations we have, like, people don’t show up for calls and really know anything about the artwork so we’re educating for the first time, outside of Picasso, Banksy, Basquiat, maybe Kalama. Those are really the only artists that people have heard of, so we’re just doing a ton of work to train people on the artwork from the ground up.

Meb: This seems like a pretty obvious question I’m sure you get a lot. For the most part you guys have been, and correct me if I’m wrong here, focused, sort of, contemporary, what is that, post-World War II, sort of, marketplace. Is that evolving as you get bigger, as people are just consistently saying, “You, I want my Van Gogh?” What’s the vision there? Do you think that’ll expand, or how do you think about it? Is that just opportunistic?

Masha: So what we see is that the returns in the impressionist and modern art segment, which is what ostensibly, you know, Monet, Van Gogh, Picasso would fall under, they, I would say, under-perform, or have under-performed relative to post-war and contemporary. And we just see the interest continuing to probably be stronger in the later segments. I mean, I think maybe you experience this, too, if you go to a museum, some things have a really amazing presence in a museum.

But if you think about that people are actually buying these things, these works to live with them, certain artists that feel much more contemporary and as the new generation of collectors starts and continues to buy, we just see demand continuing in these more recent segments. I can’t say definitively what we’re going to offer by the end of the year, but we did, at the end of last year, we did offer a Picasso that did exceptionally well on the platform, even though our published returns are lower than most of our other offerings, or were lower than most of our other offerings.

Scott: Yeah, I mean, I think the thing that’s interest about impressionist and modern, and I like to use this example with Monet, when you think about any asset class, you think about, what is the appreciation rate of return and what is the volatility? And therefore, what is the risk adjusted return or sharp ratio from a technical, financial perspective? And if you look at certain markets like Monet, his historical appreciation rate is 6% to 7% a year, but his volatility is incredibly low. So his risk-adjusted return or sharp ratio was above one.

And we think that’s a really interesting segment of the art market, but a lot of investors in today’s world are not looking for a very low risk 6% to 7% return, at least the ones that we see coming to the website. So I’d like to integrate those types of offerings in that segment of the art market into the platform more in the future. Because I do think there’s definitely product market fit for a certain type of investor, but we haven’t seen as much so we haven’t really done it so far.

Masha: Yeah. We’re also talking about a completely different price segment. So if you’re thinking about buying, like, Cecily Brown, I’ll use her as an example. I love her work. Right now her auction record is between 6 million and 7 million, so the best work you’ll find by her is going to be in that price range. To buy the best Monet or the best Picasso you’re looking at 100 million.

Scott: Two hundred million, yeah.

Masha: Huh?

Scott: Two hundred million.

Masha: Two hundred million.

Meb: We’ll just call that y’all’s series B.

Masha: We’re just going to fundraise for this one painting. And so when you’re also thinking about then turning around and selling that, let’s say, $100 million to $200 million painting, how much harder is it to find a buyer that’s willing to pay 2x that, versus 2x $1 million to $5 million? It’s a completely different ballgame at that point. And so they’re just much harder to find. You know, finding a Van Gogh right now is next to impossible. There was, in November, I think we mentioned briefly that there were the big sales, but there actually was an impressionist collection that came up to market and they were all, I would say, pretty much A, A-plus examples by the various artists. And you had outstanding prices, and then when I looked at those prices, part of what I thought was, “Well, is somebody going to be able to resell a tiny Monet fragment that has the estate stamp on it for enough to make a profit on this in 5 to 10 years?” I was thinking probably not.

Meb: Look at you guys having price discipline here in 2022. No one has price discipline.

Masha: We’re seeing some crazy things at auction but we’re being selective about what we go after.

Scott: I was just thinking back to the November sale when some of these Monet’s were selling…I can’t remember the painting or the prices now, but tens of millions of dollars. I took this business partner to the sale and he’s like, “Monet’s are selling for $40 million. That market must be on fire.” But the thing that a lot of people fail to realize is in 1980 Monet’s were selling for $20 million. So it’s one segment of the market where prices have always been really high.

Meb: Masha, you mentioned some of the things you see that are crazy, amazing, good, bad, just bananas. Tell us about some of those. Are they just price-agnostic collectors? Is it groups that just get caught up in the bidding frenzy? I’m sure there’s a million stories about the art market you guys can’t tell for various reasons, but talk to us a little bit about some of the experiences you have in this world that most of us will never see.

Masha: I mean, I think it’s every season you tend to forget that there is going to be another season that’s probably as exciting. And so you walk out of the sale room and think, “Jeez, I can’t believe that made that much money.” And then it’s, to me, incredible that the auction houses turn around and do it again six months later or sometimes sooner. And so one of those moments is The Macklowe Collection came up for sale, a real estate titan and going through a divorce. And Sotheby’s, it was well known that they put up a big guarantee and then were sitting in the room, kind of, expecting some works that were priced very fully expecting quiet bidding.

And then you see people on the phones get into bidding wars, and so in some cases you find out who bought what. And the hard thing is, obviously I can’t talk about that here, but it is interesting because you see some of the wealthiest people now really competing for pieces, because sometimes it’s clear to me why they’re competing and sometimes it’s not so clear. Because we internally will look at something and price something differently. So it’s one of those moments, like last season, the sale, you realize that the art market is really changing quite a bit. And so really just being aware of how people are buying and that top end of the market is much more unpredictable than when you’re in the, I’d say, like, under $20 million category. I think the Rothko was the first thing that came to mind was just we weren’t expecting it to go for, what was it, 80 something, like, $80 million or $90 million.

Scott: Yeah, I mean, there’s more billionaires now than ever, right? And the number of new billionaires entering the art market is arguably the faster pace than we’ve seen. It is unpredictable, and I think it’s even more unpredictable when you have new, very wealthy people entering the art market that haven’t collected before. It’s hard to, sort of, figure out, what will they collect, how they’re collecting. Collecting patterns change, and that’s what the auction houses and dealers really focus on.

Meb: Yeah. I remember talking to a collector, one of my favorites, he’s a coin guy. And he said, “One of the things when I look to the future is thinking,” and this is generational trends, “But what did that generation when they were younger covet when they didn’t have any money as they come into money? What will those preferences then play out in the real world when each one has its different expressions, of course?” And that’s probably an easy task to brainstorm about but harder to actually make an investment thesis around.

Scott: I think the example of that in the art market is Banksy, right?

Masha: Yeah, I learnt about Banksy in high school and then in college one of my very well-respected professors discussed Banksy. But at the time, the art market wasn’t taking him seriously. You could get a Banksy for under $5,000 easy. But there were these pockets of big collectors, especially who really just liked his aesthetic and bought dozens of his works.

And now he’s almost, like, this…I would say it’s the closest thing to an artist folk hero people have. He has a message that fundamentally speaks to a large population and he has this visual language that he’s developed that can cut across languages and really be understood by a lot of people. So we do see a lot of people who grew into their wealth through also some, I would say, non-traditional means. So for example, like crypto, and you could understand why collecting Banksy and going after Banksy resonates in a way that it wouldn’t with your very traditional collector who grew up learning what art is by going to the MoMA, versus these more underground, organic events.

Meb: As you guys look around this space, I don’t want you to telegraph your intentions as the axe now, but are there certain areas you guys look at and you’re like, “You know what? I don’t think investors are really appreciating this certain class of artists, or styles?” Or maybe we think they have, sort of, this is the small-cap value of…and I was smiling, Scott, earlier as you were talking about the projections because I consistently this past weekend get ratio’d and dumped on on Twitter because I think market cap U.S. is straight up a doughnut or a bagel for real returns for the next decade, so 0% returns. Nominal will be maybe three or four. But there’s pockets of opportunity everywhere, there usually is. These things go through cycles. Are there any areas you guys are particularly, either personally or firm-wide, excited, bullish on, hope to acquire that you haven’t? Anywhere you want to take it?

Scott: Well, the one thing we always talk about a lot is our, sort of, abstract painters in the platform and just lack of receptivity investors have.

Masha: It’s one of the things that people talk about. We’ve been discussing works that can be sold via PDF. Now there’s a whole class of works that cannot be sold via PDF, and minimalism definitely falls into that category. And so that’s something where you see it on a screen and it doesn’t have an effect on you, because the whole point is standing in front of it and sitting with it for a while, and seeing it in its intended place.

Scott: So if you look at the whole portfolio, the whole portfolio net of fees has performed about 15.5% on an annualized basis. And you look at artists like Richter, … an abstract painter, Agnes Martin is a minimalist painter. Those have been some of our best offerings from a performance perspective, but I think a lot of retail investors look at these paintings and it kind of falls into that, “I feel like my kids could do that” category and they wind up not investing. But those have been some of our best performing artists.

Meb: Yeah. It’s going to be fun to watch you guys in the coming years as we look out into the horizon, 2023. It’s hard to say, jeez, 2025 for Masterworks. What are you guys noodling on, other than our Soho party Masterworks meet up come springtime in New York? I haven’t been to New York in, like, two years.

Scott: Yeah, you got to come visit us.

Masha: Since you’re talking about farm land all the time, am I guessing you’re in the Midwest or Texas?

Meb: No, I’m in Los Angeles.

Masha: Oh, yeah, you said that earlier. Okay.

Meb: But we talk a lot about investing opportunities in areas that historically have been not available to most investors. And while totally different, farm land and art are two categories that historically had great returns. We had a professor on this podcast who did a great paper in your world, Professor Dimson of Marsh, Staunton. They wrote my favorite investing book, “Triumph of the Optimists,” but they had a good paper on certain collectibles, art being one of them. But farm land, my family comes from the Midwest, so Kansas, Nebraska, and it’s a phenomenal asset class but hard to access, too, so similar opportunity. And it’s funny because I think I told Scott this when we first chatted. When I saw a lot of these platforms, including Masterworks, I said, “Cool idea, way too ambitious. This is going to be so hard, you’re going to have to have thousands of phone calls with investors and that’s just not going to work.” So kudos, guys.

Scott: It’s definitely very hard, yeah.

Meb: But it’s great to see.

Scott: So when we think about growth in 2022, there’s really two things we think about. One is, what type of investment products can we offer? So today that’s really these single-asset vehicles where people are picking and choosing which painting to invest in. We want to roll out a fun product, which we’re very close to doing now so people can just get broad beta-like exposure to everything on the Masterworks platform. And the second thing is distribution. So I think we’re very unique in that whether you’re a large endowment like Harvard, or whether you’re a tiny investor investing $20 in every offering that we launch, there’s no way to really get exposure to art today outside of buying a painting or working with us. So we want to offer products to all different types of investors across both advisory and into institutions as we move forward. And those are obviously longer sales cycles, but we have lots of demand really across all investor types.

Meb: Yeah, so if you got one of the institutions that’s listening to this and they say, “Hey, Scott, can you do, like, a,” white label being the wrong word, “But can you just act as my…I like Masha, I want her to be my rep. Can I just give you 100 million bucks and you guys build me a portfolio?” Is that something you guys would be open to? Or is it just not really fitting the brand right now, or what’s the story?

Scott: Yeah, I mean, that specifically doesn’t fit the brand, but we have talked to people about fund structures where we do custom portfolio construction by having the fund buy certain paintings that we launch in the platform. So if someone wants a certain portfolio to meet a certain appreciation rate, volatility criteria, we can theoretically construct that by having the fund just buy certain securities in the platform. So we have had conversations like that but that’s really about it so far.

Meb: One of the things we haven’t talked that much about is, and we talk a lot about this investing, we talk a lot about the buy. What paintings do you buy? What are the opportunities? How do you use data to inform that decision? How do you work with all the weird, wonderful, eccentric personalities in the art world? But that’s only half of the decision. The other half is, when do you let it go, if ever? Talk to us a little bit about how you sell. What is the general process? Is it traditionally through auction? Is it somebody just ringing you up and saying, “Yo, guys, got a buyer. It’s a Russian oligarch. He wants this one.” What’s the traditional timeframe that you hold these and everything wrapped up in it?

Scott: Yeah, so the art market tends to be very event driven, so the right time to sell paintings are usually when you have momentum behind an artist setting a price record, a retrospective in an institution, something that’s driving a lot of interest in that artist market. For the paintings that we have sold, it’s been people who have just come to us unexpectedly and made offers to buy certain works at prices that we think are fair. That certainly happened, but I think we tell people to think of these as 3 to 10-year liquid holds. We’re three years into the portfolio now so we’re just starting to see more paintings sell, but we actually expect a lot more to sell over the coming years.

Meb: Well, the nice part now is you’re going to start to have the rolling vintages, where you have stuff that’s brand new to the stuff you’ve held for years of various artists. So it’s kind of like a private equity portfolio that has, sort of, an indefinite rolling future, which is cool.

Scott: Yeah. And we are also focused more…I mean, one of the top priorities this year is to focus more on secondary market to actually get market makers into these securities, build out more liquidity so investors can get out in hours rather than days, which is kind of the typical transaction time now in the secondary market. So I think that’s another key feature that’s really interesting. If you can build out liquidity in these assets then the need of actually selling them declines over time.

Meb: Well, good. You’re going to see…do you guys have to have a name on it? I was going to say, Manhattan Beach Surfer put in a bunch of cheap bids on all these floors on all these markets waiting to get people when they get upside down on their mortgage. They have to go sell their paintings to me. That’s how I’m going to acquire my portfolio $20 at a time.

Scott: I imagine you’ll be very happy with that.

Meb: Yeah. We’re never going to have a bear market in stocks again. I don’t know, it’s been a long time since we’ve had a big, fat one, but they’re normal. They come and go. What else, guys? What have we not talked about today that’s been on your brain? Anything you’re worried about, excited about? Any government influences? Anything going on in the geopolitical world that you think is curious?

Scott: I think the one thing that is, I was, kind of, over holiday reading just recaps of 2021. And I think the thing that was really interesting was how China continued to be a big player in the art market despite the public markets in China, right? I think public equities in China were down 25% roughly last year. That was pretty surprising. I would’ve expected China to be more quiet, but I guess, just this dynamic, again, of the top 1% of Chinese billionaires are very different than how the public markets are behaving in that country. So I think that was a good sign. Yeah, it doesn’t really seem like anything is causing art prices to slow any time soon. But like you said, you could almost say that about…

Masha: You never know.

Scott: …every other asset class.

Meb: I imagine this comes in waves, like, so you see people have certain runs wealthy in China. I mean, the U.S. is certainly still stock markets at all-time highs. The crypto community has had a huge inflow of wealth, although they may seem to be targeting that at NFTs. I have no idea. But you typically have these, sort of, peaks and valleys of investor groups. Is this still mostly American dominated, Europe, or is it, kind of, everything?

Scott: It’s very roughly, I think, a 1/4 of the U.S., 1/4 China, 1/4 Western Europe, and 1/4 rest of the world, give or take, over the last several years. So there isn’t really any particular country outside of the U.S. and China that have a major influence in the art market.

Masha: Yeah, and it’s also kind of funny to think about some of the people who buy the works that are $20 million plus. They probably have a home in every place that you’ve just mentioned and their collections go also around the world.

Scott: Yeah, I think that’s right. We are seeing more demand in Asia to buy Western art, so we do see more Western art being sold into Asia.

Meb: All right, Masha, who’s an artist that you haven’t acquired that’s on your to-do list? You can name a couple so that you’re not just telegraphing to the world that Masterworks is going to buy up all the…

Masha: I know, I’m like, anyone. Scott doesn’t want me to do this but I think we want to keep the element of surprise alive for when they appear on our platform. But I will give you a hot tip. In February, if you’re looking to learn more about our experience and art fair, Frieze Los Angeles is taking place in February, so I think it’s February 17th to 20th.

Meb: What’s it called?

Masha: Frieze, F-R-I-E-Z-E, so that’s another thing. Things are sort of open, open but wear a mask. The art fairs are still ostensibly happening, and so it’s actually nice to get out there and see a bunch of art in one day versus having to travel all over the city.

Meb: This is officially the only few days I’m going anywhere in the next quarter. It was supposed to be in Miami the week prior but that conference just got cancelled, so I was hopping over to see some friends who have decamped to Puerto Rico. And it is literally during that week, so we’ll see. That may get cancelled, too. Who knows? My favorite museum that I went to in the past six months was the Crystal Bridges in Arkansas. I had no expectations, and we were at this…AcreTrader had a farming conference and was down there. And I couldn’t even find Bentonville on a map before that but was so pleasantly surprised at what an awesome museum. And if you like mountain biking, listeners, that’s, like, a world-class spot. Well, Frieze, we’ll see. I may send some friends and see if they can take some notes for me.

Masha: It’s the place to go.

Meb: Cool. Any other big events coming up elsewhere in the world? New York, you said at springtime mostly?

Masha: Yeah, so Frieze is the first bigger art fair and that’s happening in February. And then first week of March, that’s when you kick off the first round of auctions with London. And it’s always, I think, people get a little bit jittery for the first one of the season to see how it goes, and whether or not you have active bidding or tepid bidding. I think all the indicators point to active as of now. And so then once March 1st hits, we’ll be off to the races.

Scott: The one thing you can do, which I think a lot of people don’t actually know this is you can actually just go to Sotheby’s or Christie’s website during auction season and watch the auctions live. And if you’ve never done it before, it’s cool to see half billion, billion dollars of art sell.

Masha: Yeah. So that crazy sale that I mentioned where you’re just sitting watching the bids ping-pong between two specialists, you could’ve just bid on in the comfort of your own home watching that.

Meb: It gives me too much anxiety. The only auction I’ve ever been to, I was in my late 20s, Palm Springs, and there was a Camaro I wanted to buy. Thank God I didn’t buy it. What a nightmare this would’ve been. It was, like, a late ’60s, burgundy gorgeous Camaro. And I went there, had a number in mind, and it sold for less than the number. The whole thing was causing me too much panic, so I’m happy I didn’t buy it but at the time I was quite sad about the whole process, but a fun…it was very much like a circus atmosphere with all those beautiful cars. But yeah, I would love to go and just stress myself out watching Masha in a disguise.

Masha: Just don’t register for a paddle or don’t raise your hand or scratch your head and you’ll be fine.

Meb: Yeah, cool. Yeah, no, I’ve seen, like, I think, everyone else on the planet, the famous shredding video and some of these others have been fun to watch.

Scott: Yeah, and that resold.

Masha: A world record, a rumor has it that it’s going to a museum in China, and that painting that sold for, what was it, $2 million, $3 million?

Scott: I can’t remember what it originally sold for.

Masha: And went for 30 and is now the new auction record.

Scott: Yeah, so it was crazy that the person bought it for whatever, I can’t remember, 3 million, but it’s even crazier that it’s now considered this important culturally significant object.

Masha: Yeah. But also even funny, because just circling back to the DAO aspect, I knew someone who was bidding on behalf of a DAO. It’s this really unpredictable dynamic where it’s pooled capital in a way Masterworks has pooled capital. We also have pooled capital coming in from other angles. The Banksy market is just one of a kind.

Meb: Yeah, interesting. Are there any other weird outliers like that? Is he the one? I mean, he’s got a ton of name recognition, particularly for the younger crowd. Are there any that have that, sort of, characteristics around it?

Scott: I mean, every artist market has different characteristics that really drive demand, I think, with the different type of collector base by market. But that’s been the most unexpected one. That’s funny, like, even when you looked at the Banksy that I mentioned which sold out in a couple hours, the historical appreciation rate that we calculated on that work was, like…

Masha: Yeah, the price appreciation of 12% to 13%.

Scott: Yeah, 12% to 13%, but in the past 12 months we’ve seen this huge explosion. So when we calculated it over the last several years, it’s low. Yeah.

Masha: Yeah. And again, this just speaks to the fact that each artist has a standalone market. And so you can’t lump everything into this post-war, contemporary, because each artist within that, you have to look at their markets and their body of work independently.

Meb: Yeah. Guys, this has been a whirlwind tour. We should be doing this every six months, I imagine, hear what is going on in your world. Any final thoughts? Obviously, where do we go, Masterworks? Is it still masterworks.io?

Scott: Yeah, masterworks.io, can create an account, schedule a call with our membership team. They’ll walk you through suitability, how you’re investing today, what your risk tolerance is, make recommendations around total allocation for a portfolio, and then specific offerings.

Meb: Listeners, if you use code “Meb” you get something. I can’t remember what it was, but I think the thing was is that it directs your onboarding call direct to Scott. You get to talk to him to onboard you.

Masha: It goes straight to his cell phone.

Scott: Yeah.

Meb: Y’all, this has been a blast. I really appreciate you taking the time to join us today.

Scott: Thanks, Meb.

Masha: Thanks. Nice meeting you.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at feedback@themebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe to show anywhere good podcasts are found. Thanks for listening, friends, and good investing.



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